May 31, 2025 • 57 mins
What is a currency? This turns out to be one of those questions we just kind of skip over because we don't have clear answers to it (and because economists often like to skip over these foundational things). This special episode of the Odd Lots podcast was recorded as part of Princeton University's “How to Write the Biography of a Currency” event, hosted by the Princeton Economic History Workshop and the Julis-Rabinowitz Center for Public Policy & Finance. In this discussion, we talk about how we should define a currency and how that definition has changed (or not) over time. Our panelists were Iñaki Aldasoro, an economist at the Bank for International Settlements, Indiana University Bloomington Professor Rebecca Spang, and Stefan Ingves, the former head of the Sveriges Riksbank, the central bank of Sweden, from 2006 to 2022.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Hello, Odd Lots listeners. I'm Jill Wisenthal and I'm Tracy Alloway. Tracy,
we're doing another live show and it's right here in
New York City.
Speaker 2 (00:07):
Yeah, this one should be our biggest yet, and we're
going to have a bunch of Odd Lots favorites and
do something maybe a little different to some of our
previous live podcast recordings.
Speaker 1 (00:18):
When the guests are revealed, the show is going to
sell out right away, so you should really just go
get your ticket right now. It's June twenty sixth. It's
at Record NYC, and you can find a ticket link
at Bloomberg dot com slash odd Lots or Bloomberg Events
dot com slash odd Lots Live and why.
Speaker 2 (00:34):
We hope to see you there.
Speaker 3 (00:38):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:54):
Hello and welcome to a special episode of the Odd
Lots Podcast. I'm Tracy Alloway.
Speaker 1 (00:59):
And I'm Wishal Joe.
Speaker 2 (01:01):
This is special. I think this is the first time
we've done this.
Speaker 1 (01:04):
We're not used to like, you know, we like to
talk to academics certainly, but we've rarely ever done anything
like in the proper academic setting, in the types of
seminars where you know, academics are on their home turf.
Speaker 2 (01:18):
That's right. So we were invited by the Princeton Economic
History Workshop to an event called how to Write the
Biography of a Currency. I love that topic and that name.
And we were invited to moderate a panel specifically on
how to define a currency? How do we define what
actually is money and what it does and all that
(01:40):
good stuff. And we had an amazing panel.
Speaker 4 (01:43):
That's right.
Speaker 1 (01:44):
So we had three guests. We talked to Inyaqui al Dessoro,
an economist at the Bank for International Sentiments, Rebecca Spang,
a professor at the University of Indiana, Bloomington, and Stefan Ingves,
the former head of the Sfeti Jerichsbank, the Central Bank
of Sweden from two thousand six twenty twenty two. So
take a listen to the three of them.
Speaker 5 (02:04):
So I mean solo, and I'm a principal economist at
the banker International Settlements.
Speaker 6 (02:09):
Rebecca Spank, professor of history at Indiana University.
Speaker 4 (02:13):
Stefan Ingvest, a former governor of the Swedish Central Bank,
the ricks Bank.
Speaker 2 (02:18):
Should we go down the line, Shall we start with
Stefan how to.
Speaker 4 (02:21):
Write a biography of a currency, or actually maybe how
to define a currency. And let me start by saying
that it's a privilege to be here and discuss money,
or actually I think in the course of the day
money is using the plural. It just so happens that
forty seven years ago, when I was visiting a graduate
(02:42):
student here in Princeton, I took a course in monetary
theory and I got hooked. And little did I back
then know that with my finished background, I would end
up leading the all of the central bank, the ricks Bank,
and also became one of its longest serving governors. So
(03:03):
quite a journey. And with that as a background, what
a privilege to be back as a practitioner. That's my
background when I'm talking about money today and what I
have sort of experienced and concluded over the years. Let
me start by saying that money is a social convention.
Money is something about what we have in our heads.
(03:26):
And this is also why we have moved over the
centuries from seashells to something on a hard drive or
nowadays maybe in the cloud. And then that of course
begs the question in terms of changing technologies, what is next?
Today money is an abstraction, but we still talk about
(03:50):
money in terms of something that we can both see
and touch. And it's remarkable that each and every time
in my bank, when a new group of PONS politicians
were appointed to the General Council, they always wanted to
see the gold, not talk about the money as such.
It was always can we get to see the gold?
(04:14):
And that has something to do with this issue that,
on the one hand, money is an abstraction, while on
the other hand, we're sort of wired in our heads
in such a way that we want to touch things.
We can talk about money in many different ways, and
we can talk about money at the micro level and
(04:35):
kind of the monetary plumbing, or we can talk about
money at the macro level, and at the macro level
it's more sort of money tied to economic activity in
one form or the other, and then it's actually economic
activity in the aggregate. And you can also talk about
money as something somewhere in between money as part of
(04:57):
the financial plumbing. And that's kind of where I decided
to say a few things today, and my remarks, I mean,
they're really really given my background coming out of the
FIAT money world. When we talk about money, I think
a helpful distinction is also to try to make a
(05:18):
distinction between public sectremoney versus private sectremoney. And also when
it comes to monetary policy, which I'm not talking about today,
Monetary policy is quite a lot about how to execute
some kind of monetary control in this dual environment where
(05:39):
we live today. One simple way of explaining that in
order to maintain monetary control in one form or the
other is basically to say that that requires an exchange
rate which is one to one between public sector and
private sectremoney, and if that is not the case, then
(06:01):
the whole thing collapses. And countries of today where you
can watch this is, for example, Zimbabwe and Venezuela, and
you know what happened in those cases. Another way of
describing this, and it's somewhat similar, and I do think
it matters, but it's almost never described in this way
is to talk about it in terms of front end money.
(06:23):
That is kind of what we see and what we
think that we are using, and today it's basically what
you see on the screen of your computer and when
you use an app, and that kind of means some
vague sense represents money to us. And the other version
of it is what I call backend money and ultimately
(06:44):
back and money is central bank money in one form
or the other. It's a height to the payment system.
It could be a central bank digital currency, could be
a deposit or something else. And it doesn't really matter
if it's one ledger, if it's this due to ledger technology,
it's a token or what. It's really the principle that
(07:05):
I'm talking about. But also when technology is change, what
happens is that all strategic issues come back. And many,
many of you know what has happened over let's say
a thousand years or something like that when it comes
to money. And my conclusion from that is that since
money is a convention, there is almost nothing new under
(07:27):
the sun when it comes to money. But technologies do change,
and that forces us to get back to all issues
that others have grappled been in the past. A gross
simplification is to say the following that back in the
eighteen hundreds, and that's kind of the mindset that we
have inherited today when we talk about money, everything was
(07:49):
on paper, and in the late eighteen hundreds in a
very large number of countries, the central bank ended up
being the sole issue of a physical bank. In the future,
we have to get used to the idea that nothing
will be on paper, and that means that we have
to get back to all issues and think hard about
(08:13):
how do we reestablish the moneyness of monies in this
new environment when we have to think about this, and
at the same time, it's absolutely obvious that nowadays that
money is also part of the state. Money is tied
to a nation in one form or the other. Not
(08:33):
necessarily every work, particularly not if you have destroyed the
value of your own money. But at the same time
you just have to accept the fact that parliaments and
politicians have views on money, and that raises the issue
going forward whether we should have a central bank digital
currency or not, despite the fact that we cannot see
(08:56):
what it should look like. Are we talking retail, Are
we're talking wholesale? Ulish can talk at length about that
because he is presently working on them, and this creates
an interesting environment going forward when it's not about one
currency dominating or not. But it's a fact that different
(09:16):
nations come to different conclusions on this as of today,
because look at what's going on in the US today.
Basically more and more of it seems to be pushed
to the private sector. In the EU they're working hard
on a central bank digital currency. In India they have
been extremely successful establishing their UPI framework, which kind of
(09:38):
ties central bank money to the payment system and ties
also front end to back end using my vocabulary in
a very efficient way. Same thing is going on in
Brazil and China is working hard on their project. And
this projects actually will not be identical, and it's basically
(09:59):
too early you tell which will work and which won't
work and what it really does in various economies. And
this means that one way you're looking at this is
to call it the great game of our monetary future
in a one hundred percent digital world, whatever that means
going forward, and that means that in this environment we
(10:22):
need to define or maybe redefine the role of the
state in money space, and that will, of course, also
in different countries, affect how we actually execute monetary policy
in different different ways. What I do think matters here
when it comes to money is that one is of
course the stability today it's called inflation targeting, you can
(10:45):
call it whatever you like in the old days. And
the other one is what I call transactional efficiency, because
if it's impossibly difficult to use your wonderful currency. No
one will use it because it's just so hard to
use use it. And what this really means is that
new technologies bring old issues to the fore. And one
(11:07):
extreme way of expressing this in a short form is
to basically say that today, with a fairly high likelihood
and old fashioned howallah transaction is probably executed in an
it world in one form or another. It's also a
fact when technology is changed. And this is really really
(11:27):
what we see today that it people do not know
a lot about money, and money people do not know
a lot about it, and that creates a lot of
confusion from time to time. And then in addition to this,
when you do this, then somewhere in the middle you
also have to have lawyers and a legal framework. So
you have it. You have a legal framework, and you
(11:50):
have economists and jointly this is actually what is going
to define how we use money in the future and
what this is all about. And then back to the
holy you're writing a biography, so I do think that
such a biography should also include something about where we
are today and maybe speculate a bit where we are
(12:13):
heading into the future. Thank you.
Speaker 6 (12:16):
So Stephan just said that money is a convention, and
so there's really nothing new. Technologies just present the same
questions in different guises. I would say that conventions are
socially determined and societies change, and so the convention for
issuing money, say in the ancient Mediterranean, is going to
(12:40):
be different than the convention in the Middle Ages, and
is going to be different again from the conventions under capitalism,
as Chris was just talking about. I think another thing
to think about is that money, like any technology, when
it's working well, we don't really pay attention to it.
(13:02):
It's only if the power goes out that we suddenly
realize we're in a room that has electricity, and normally
it's just sort of humming along in the background. So
I think with currency, we and here I mean ordinary
users of money, not in fact central bankers, but the
great majority of people do not think of money as
(13:25):
something that has a biography. It's not born, it doesn't
go through adolescence, reach adulthood, then be an old age. Certainly,
ordinary people don't imagine money as something that's going to die.
If they are fortunate, if they are privileged, there comes
a point in their lives when they start to think
about what they are going to do with their money
(13:46):
when they are dead. But implicit assumption there is that
the money itself is immortal. After all, that's what makes
it a store of value. So a fully functional currency
in the mind of the people who use it seems
in fact to be outside of history, all right, that
it's not going to have a history or a biography.
(14:09):
And on the other hand, I will say as a
historian that even using the word currency to refer to
the monies used one place and not another is in
no way eternal or immortal. Locke John Locke, the famous philosopher,
(14:30):
in his Some Considerations of the Consequences of the Lowering
of Interest in Raising the Value of Money sixteen ninety two,
uses the word current twenty eight times, but never the
word currency. So the way we think about currency is
itself the product. And this ties again to something Stephan
(14:50):
just said of late eighteenth and nineteenth century revolutionary nationalism.
So a rupture with the past. It's a revolution and
the growing naturalization of the nation state. The assumption that, well,
of course there are nations and they have states. This
is a historically specific development. It wasn't a concept people
(15:11):
had in the Middle Ages. It doesn't make sense if
you think about the very long history of China before
the Republic, and it may not be true in the future,
but in the mid eighteen hundreds, having your own money
was one of the things, along with a flag, a
standardized language, an anthem, that established that some group of
(15:35):
people got to be a nation. And as with so
many features of nation thinking, a currency is part of
how a bounded community is imagined and defined. Dollars on
one side of the border, pesos on the other. I mean,
that's the theory. In practice, of course, it's not always
(15:57):
the reality. I grew up in Maine and there Canadian
coin circulated on par with American and you didn't even
notice whether they were Canadian dimes or US dimes. They
were just all dimes. So, prior to the debates in
Great Britain occasioned by the Bank of England's suspension of
(16:18):
payments in seventeen ninety seven and then the eventual resumption
decades later after the Napoleonic Wars, currency was a quality
that a money object might have in some markets, and
not having others currency meant that it was widely accepted
as a means of exchange. And what's crucial here is
(16:39):
that the coins are the bills that quote unquote past
current or were discounted at a predictable rate in any
given place, were not necessarily expected to be units of
account or long term stories of value. Current, after all,
is a reference to time as well as to the
forces that move goods across the sea and actually lock
(17:02):
in some considerations, makes lots of ponds on current in
the sense of a money that passes current and current
in terms of how you move things through the ocean.
So think a little bit more about what it would
mean for a mode of payment or a means of
exchange not to be the unit of account. In early
modern France, so seventeenth eighteenth century, before the Revolution, the
(17:26):
common large denomination coin was an AQ, and it was
called that because it depicted the aquson the shield of
the French monarchy on one side of it. But accounts
were kept in leave pounds. There was nothing circulated that
was called a leave and no denomination indicated on the AQ,
(17:48):
so the coin was called that because of what it
looked like. Was it worth three leave four four and
a half? It was up to the king to determine,
and in fact, in periods of political disruption, often in
periods of war, the king could revalue the circulating medium.
Louis the fourteenth did it a lot in the final
(18:10):
decades of his life. So there was a gap between
what circulated and how people counted, and that's not just
a weird French anomaly. No pennies and hardly any shillings
were minted in eighteenth century Britain, but people went on
keeping their accounts in pound shilling pence even if they
(18:31):
had none of those things. Another distinctive feature of the
early modern period is that it was up to the
private sector to determine whether to bring gold and silver
to the mint to be stamped as money or not,
and that gold and silver being brought to the mint
might be newly mined or from the Americas, or it
(18:53):
could be coins stamped by some other sovereign. Economic growth
in eighteenth century franch in Britain was largely made possible
by private money, bills of exchange, promissory notes from one
merchant to another, and all sorts of short term notes
written by one government office to another, and that model
(19:14):
of a private choice continued to inform debates during the
French Revolution, as I suspect everybody knows, the National Assembly
issued paper backed by the value of nationalized church properties.
These are the assigna. But it didn't mandate that the
(19:35):
assignac circulate on par or at any particular exchange rate
for the coin still in circulation, and many people argued that, well,
money is a merchandise like any other, and it was
up to the money changers to say, well, I'll give
you three AQ for your assign of twenty five leave,
(19:57):
or I'll give you ten. That was up to the
market to determine. So a century after this period, with
the rising prominence of classical and neo classical economics, Europeans
generally reacted to this sort of monetary variety and the
tension between private and public issuers as a sign of
(20:21):
backwardness and inefficiency, even though it had been the norm
in Europe less than one hundred years earlier. So when
they encountered it in the Qing Empire or in South Asia,
they immediately denounced it. I think in part because they
realized that as long as the sort of local knowledge
was relevant, they were never going to be able to
(20:43):
outcompete local users so they impose this new European model
of one country won money, what some people have called
the Westphalian logic, on the rest of the world. So
there are other things that I can say. I think
what I want to end on is that the common
(21:04):
sense understanding of money as something without a history, something
immortal or eternal, is of course a fantasy. But very
often when histories of money get written, they nonetheless focus
on those elements, the theories of economists, the intention of planners,
(21:24):
that do themselves have some claim on immortality in that
they're at least written down otherwise recorded, and can be
found on the shelves of libraries or in the cartons
of archives. What that history misses is the actual day
to day practice of money, what ordinary people are doing
(21:45):
with their money, and how they're thinking about it. That
is a much more difficult history to write, but it's
the one that I am committed to write it.
Speaker 5 (21:53):
Thank you, okay, So let me first start by by
thanking Harold and Brendan for for inviting me, for giving
me a chance of percent here. This fantastic event to me,
it's a real honor to share the panel with with
Rebeca Stephan the tower in fear of course, in the
central banking community. And if I'm still your own phrase
with the with the perfect moderators. So before I begin,
(22:13):
let me start by reminding you that these are my
views and not those of the of the Bank for
International Settlements. I would like to start by saying something
that is probably very uncontroversial, which I think money is
one of the most, if not the most consequential and
impactful social technology that was ever by humanity. And as
a monetary economist, of course, I tend to think as
this as the most fascinating as well. And I mentioned
(22:36):
social because I think this is something that came up
in the in both Stephan and Rebecca's comments that money
is a social and institution that is sustained by a
share expectation that money that is accepted in payments today
is going to be accepted in payments tomorrow. And this
requires trust in money. This requires trust in the stability
of money, and also this requires trust in the ability
(22:58):
of money to elastically scale to meet the needs of
a growing economy. So I think two things then follow
from this perspective. The first is the centrality of money.
Many economies often conceive of money as a veil, that
sort of mask and underlying real world of commodity production
and exchange. I don't share this. I don't share this view,
and I think, like probably like many people in the room,
(23:19):
I conceive of money as the essence of a world
of interlocking promises to pay. So Stephan also mentioned tokens,
and then Michael, Yes, I mentioned organization quite prominently in
the dinner speech, and I think it's actually possible to
conceive of money as the primal or primore. Their original
organization is the organization of the credit and that relationships
(23:39):
that bind all of us together through the financial commitments
that we make that we make to each other. So
as the first element centrality of money's second element is
the emphasis on payment. So money is, as far as
I conceive it, first and foremost, means of payment, which
which is meant to say, a means of certainment. And
I think this is important because it gets me in
some way, after dancing around the concept of what is money,
(24:01):
to start to define money a bit because it points
to a key qualitative distinction between money and credit, between
a means of payment or a means of settlement and
a promise to pay. So credit is a promise to
pay money which effectively delays finance settlement, and money is
a way to extinguish credit, to extinguish credit, sorry fulfilling
that obligation when basically when settlement comes to and in
(24:25):
this sense, money is better than credit, especially in crisis,
which is something that goes along what you were mentioned
in terms of how people use it. So people might
not understand it in this terms, but they understand very
intuitively that money is better than credit in crisis, and
as coming from an emerging market, I can tell you
this is very much the case. Now, this still makes
(24:45):
the question what is money then? And I think my
answer as an economy should not surprise anyone, and it's
going to be underwhelming. It depends. It depends, because I
really do think it depends. It depends on who issue
the promise to pay. It depends on where that issue
stands in the hierarchy of is to pay, and also
who holds that claim. So I think perhaps it's better
to talk about moneyiness of these various instruments, these various
(25:07):
promises to pay, and the hierarchical arrangement of the promise
is to pay, so bank reserves at the central bank
and cash are the ultimate means of payment. They are
money for banks, and in the case of cash, of
course there are money for all of us. Bank the
posits are in terms of form of credit because we
have a promise to deliver cash, to pay cash, or
to confer payment finality through ultimate settlement in the central bank. Yes,
(25:31):
as we know from our everyday experience, they are money
to us. Of course. Now I will not go through
the rabbit hole of discussing lower level issues of a
hierarchy of money, but I do want to highlight the
centrality of the price that connects the two highest forms
of money, and that is part which you discuss in
the one to one relationship between front end and back
end money, if you will. That's the price of the
(25:54):
posits in terms of reserves and cash. This in the
context of central current central banking discussions is usually referred
to us as the singlens of money, following the expression
by relate to mass. And it's the key to sustaining
the trusting money that I was that I mentioned in
my opening sentences, And of course in modern economies there
(26:15):
are various institutional and legal mechanisms and arrangements that underpin
trust and the credibility of all of these promises to pay,
most notably underpin the underpinning power. But we should always
bear in mind that we are always talking about promises
to pay higher forms of money. And I think what
this means is that as a matter, as a matter
of modern modern practice, it's basically impossible to talk about
(26:37):
money in full isolation from the government and the law.
But I would also like to highlight that as a
matter of both principle and past practice, this is not
the case of this is also something that we should
We should barry money even in more practice. As we
all know, most money is dead, which means most money
is promises to pay that are issued largely by private agents.
And there is this famous phrase by by Minski right
(26:59):
that one can create money and the problem is to
get it to get it accepted. So the appeal of
issuing of vision liabilities that can circulate us money that
can circulate as a means of payment is we are
kind of almost like a force of nature, and these
issues materializes time and time again, historically mostly through private initiative.
And the challenge then is after issuing this promised to
(27:20):
pay and to borrow again from Minsky, is to obtain
validation quote unquote from the for those emerging destructures that
arise from these promises to pay. And this validation always
comes from higher levels in monetariy hierarchies, and in the
limit they come from the top of the MOUNTI hierarchy,
meaning central banks. And we have seen this, for example
developments along these lines in the context of offshore dollars
(27:42):
or euro dollars. We have seen it with money market funds.
We are seeing it to some extent as well these
days with stable coins. And I think the example off
shore dollars also allows me to close by answering and
another of the questions that were posted by Brendan to
get us started and thinking about these issues, which is
the mapping between the currency usage and the boundaries of
the sovereign that is responsible for that unit of account.
(28:04):
And here what I would like to know that is
more money is also global money. And here, of course
there are hierarchies as well. And just ahead of coming here,
I had a quick under to look at the the
BS banking statistics and as oft the end of last year,
there were thirteen point five trillion of dollar liabilities booked
outside of the US. There were two point seven trillion
euroe nominated the liabilities book outside of the Euro area
(28:26):
six hundred and seventy billion or so for four pounds
and yeah, and of course, yeah, this is lobal money
that is arranged as well hierarchically, and it goes certainly
beyond the boundaries of what the issuers expect.
Speaker 4 (28:39):
So let me stop there.
Speaker 1 (28:56):
Here's more from our conversation on how we define a
currency at Princeton University.
Speaker 2 (29:01):
All right, so I hesitate to say this in front
of a group of academics, but I asked chat Gpt
what the traditional definition of money actually is according to economists,
and it said the three functions that we've basically been
talking about today, unit of account, transaction method, store of value.
Does everyone here agree with that broad definition or if
(29:24):
you had the option to tweak it and change it,
what would you do.
Speaker 1 (29:29):
We're going to keep the silence in.
Speaker 2 (29:31):
Maybe we're already done. This is the episode we've defined it.
Speaker 6 (29:36):
I think it's important to keep the means of exchange,
mode of payment differentiated, not to just collapse them together
into transaction, because I think that ordinary people when they
imagine a transaction. The default setting is still the fable
(29:56):
of barter, and so they assume that any transaction is
hap in the market. But what this whole conversation is
highlighted is the role of the state in moneyness, and
so you need that mode of payment distinguished from means
of exchange, so that people recognize that some payment you
don't quote unquote get anything back, say when you're paying
(30:20):
a parking fine.
Speaker 4 (30:21):
I do think that there are instances when you actually
can separate them despite the fact that this is sort
of how we usually represent money, and apparently in an
ai world that's also the way it is. And let
me give you one example, particularly in cases where you
have had a lot of inflation and then for various
reasons you decide to reissue your money by taking out
(30:46):
x number of zeros. In those instances, it takes years
and years actually before you stop using the old nominal values.
And a good example that I know of when I
was a kid, that happened in the case of Finland,
and when you started discussing what the value of a
(31:07):
used car was, then you always reverted back to the
old way of arguing about things and adding a few
zeros because that was familiar to everybody. But of course
in most cases that's not how you do it. But
it's not absolutely necessary to tide history together.
Speaker 5 (31:25):
Yeah, I would share that a bit. I think that
probably became clear to me. Means of payment or means
of settlement, its central to me. This is the driving,
the driving logic of everything that said. To be able
to have an arrangement of what are we going to
set alone, you need to have a unit of account, right,
so that kind of logically preceeds precedes that. But in
terms of store of value, I think these are kind
(31:47):
of derivative things that follow from a minim of account
or unit of account and means of settlement.
Speaker 2 (31:53):
Joe, I'm sure some people might be worried that store
value seems to be the least least important aspect to money.
Speaker 1 (32:00):
Actually, this sort of fits in with where I was
going next and stuff on. Obviously you talked about the
politicians wanting to see the pile of gold, which is
funny in a way but also still probably revealing. And
obviously people are into gold again these days. Maybe we'll
get back to that, but it occurs to me, like
you know, we think it's dollars convention and back by
various things, but also it's back by implicitly a promise
(32:24):
to be able to buy a basket of goods that
only gets two percent more expensive every year, this basket
of goods and services. And I'm curious, like you know,
in the broad history of like what people call money
or what people call currency, obviously it's not always gold,
and it's not always the specific basket that might be,
you know, the PCE. But how common throughout history is
(32:46):
this presumption that there will be an issuing authority that
has some redemption, either directly in the form of taking
it to the central bank and then getting a coinback,
or being able to take it out into the marketplace,
with the expectation that there's some stable stock of goods
and services that can be redeemed for it.
Speaker 4 (33:05):
I think that when Rebecca sort of said that we
think about money money forever, and we combine that with
in akis reflection, the singleness of money, and that's sort
of how we think about money in kind of our
daily lives. But the fact of the matter is that
history tells us that despite that assumption, when we buy
(33:30):
things on a daily basis, once every thirty forty years
or something like that. Things happen, and then we sort
of try to recreate new money in one form or
the other. So in a longer time perspective, there is
maybe less stability than our perception of total stability in
(33:52):
the near term.
Speaker 6 (33:54):
The idea that there's some stable stock of goods that
you can buy with your money sound to me much
more like an assumption of the moral economy than of
the market economy. In a market economy, producers are going
to compete, and some things may get cheaper, some things
(34:15):
may get more expensive. Since we don't have perfect markets,
we often have monopolies. And so it's curious to think
about how that eighteenth century moral economy idea that there
are certain goods that are so valuable to the functioning
of society that they ought to have a constant price,
(34:36):
and you ought to always be able to get bread
for to sue a pound, that idea, which then so
many economists have said no, no, Supply and demand will
shape the cost of bread, and yet as consumers we
still have moral economy gut reactions to changes in the
(34:57):
price of eggs or gasoline.
Speaker 5 (35:00):
I would add, the store of values is kind of
fundamental It's just the way I would understand how many works.
It starts from the premise that it's a means of payment.
But at the same time, because as I was saying,
this is basically a way of promises to pay, and
those promises to pay are sustained with trust. And if
you don't have trust in the ability of that currency
(35:21):
to basically maintain this purchase in power all the time,
then the whole trust edifies collapses. I'd like to think
I'm not that old, but I'm old enough to vividly
remember my own experience with hyperinflation in Argentina, and then
trust is broken and it's very hard to recover. And
that's the complete underminey of the store of value function.
(35:41):
So I think it is essential. That's why price stability
is so important.
Speaker 2 (35:46):
Rebecca, I wanted to ask you this specifically, but since
Joe brought up gold, both of us have been lucky
enough to take some fuel trips recently, and we went
to the Chicago FED and we saw their cash operations,
so billions and billions of dollars stacked in their vaults.
We went to a jewelry store in New York recently
where we got to hold some not very tasteful pieces
(36:06):
of jewelry, big necklaces and things like that, and we
were all just fascinated by this. And I think there
is something that's just different about seeing billions of dollars
in cash or potentially gold versus seeing a line of
zeros on a computer account or something like that, although
I've never personally seen that either. Talk to us about
how our relationship with money actually changes depending on the
(36:29):
physicality of money, because I know governments have often consciously
thought about this. They think about the metal content in
their coins, or they think about are we going to
print on.
Speaker 6 (36:38):
Silk or basic paper?
Speaker 2 (36:40):
So clearly this is in people's minds, right, This is.
Speaker 6 (36:43):
In people's minds. And it seems to me really important
to remember that even in a world of if it
ever existed, a world of completely digital money, there would
nonetheless be material substrate that made that possible. So it
(37:03):
is impossible to have cryptocurrency or central back digital currencies
or anything else unless you have a way to generate electricity,
you have a way to plug in your computer, you
have semiconductors, you have chips. So we tend to think
there's a fable that money used to be physical and
(37:26):
it's become increasingly abstract, and some people think that's a
story of progress, and other people think that's a story
of decline. But the reality is that there's always an
interaction of the material and the symbol making that goes
into deciding that this is money and this isn't, and
(37:50):
over time, in different places societies configure that differently, but
it's not a linear movement in one direction or the other.
Speaker 2 (38:01):
Stephan, since you've seen the gold, you want to take
that question as well.
Speaker 4 (38:06):
Yeah, I mean, one way to think about it is
that as we all have sort of alluded to, is
that we are wired to think about things in a
physical sense, and that's why it sort of feels good
to try to lift the gold in it and touch it,
while it's harder actually when we think about and we
(38:26):
talk about fiat money, because fiat money it's an abstraction
you can't touch, necessarily touch it. It can be electronics
strictly electronic, and that's basically about trust in those who
run the system, because that's what it is. And either
you sort of trust them because you say that they
(38:49):
have done this for a long long time, and inflation
seems to be pretty stable, so this probably works. Or
to the contrary, in some countries they have the system
many times over again, so it doesn't really matter who
sits there. When it comes to the individuals, you just
don't trust them. And then what you do instead is
(39:11):
that you buy gold or you hold physical dollar bills
or euro bills in the mattress, because that's your way
of buying an element of insurance. And this is very,
very difficult to deal with. But let's at the same
time remind ourselves that also in the old days, gold
wasn't always gold, and all old emperors and kings figured
(39:37):
that out that went out a long long time ago
by diluting the amount of gold that they claimed they held.
So it's not that everything was better in the old
days just because you held gold.
Speaker 6 (39:49):
I've been thinking about the metaphor of wiring and plumbing,
which are frequently used in talking about money, and I
just want to point out again that both why and
plumbing are things made by humans. They are not naturally
existing phenomena. So if we say we are wired to
do this, or the monetary plumbing works in a particular way,
(40:10):
what we're talking about is the sedimentation of social norms
and cultural assumptions that we no longer recognize as such
because they've been repeated so many times. But in a
moment of dislocation, in a period of say, political revolution,
(40:31):
then we suddenly see those for what they are. And
then a bizarre thing happens, which I mean you just
said people lose trust in the system and so they
want an object. Like how weird is that if society
is collapsing around you and you think, oh, that's okay,
I'll just have some I have my shiny rock. I
have my shiny rock. Like I don't know, I'd sort
(40:54):
of rather have functioning society and no shiny rocks. Yeah.
Speaker 5 (40:58):
The problem is that quite often this individual users it's
not a choice. You you react and I like your
mattress example, because that's you know, I can't relate to that.
And I think this becomes very clear right when when
when you have the crisis goes back to what I
mentioned that money is better than create and going to
to your book. People have an intuitive understanding of this
(41:20):
because in crisis they run away from creat and go
for money. And it's not that when they take money
out of the ATM say like, oh, I am converting
a claim on my bank to a claim on the
central They have no clue, but but they know. I
mean when when when the going gets rough they take
the money out of the bank in the case two
thousand and one Tina, or or they just go and
(41:40):
buy dollars if they if the bank is collapsing.
Speaker 2 (41:46):
H We are back and continuing a conversation on how
to define a currency, recorded live at Princeton University.
Speaker 1 (42:05):
I've seen the gold at the New York Fed's bank vault,
and Tracy, as you mentioned, we went to the jewelry
store in the Diamond District, and obviously gold has this
sort of effect on people still today. But something I'm
curious about Tracy asked about the physicality of money. Basically,
any form of currency around the world, the designers of
the physical note or the coin usually has some like,
(42:29):
you know, attempt to conjure up the sort of mystical
and spiritual history of the country in question that's issuing it.
And I'm just sort of curious, like from a design perspective,
a like how much of that is this attempt on
some levels sort of like rekindle that excitement that you
feel when you see gold, but also thinking forward as
(42:49):
money gets more and more digital. I'm curious the three
of you, like, do you think design on some level
something that like harkens back to the identity of the
nation will always be an aspect of digital money, or
always be an aspect of money, even as it gets
more and more strictly digital.
Speaker 6 (43:06):
I think a really interesting example to think about in
terms of design is the euro which specifically had to
be non national, but nonetheless wanted Its designers wanted it
to look more or less like money had looked, but
(43:27):
it couldn't have the symbols of any particular nation. So
the make believe bridges on the bills, which are not
bridges in any particular place. One of them was then built,
I think in Mastricht actually, and actually the European Central
Bank put out a wonderful flyer document of other designs
(43:53):
that were not chosen, including a whole series of euro
notes that would have had cats on them.
Speaker 2 (43:59):
So they should have used those, Yeah, they really should have.
Speaker 6 (44:02):
They're incredibly cute. So I think the thing here is
that again, this is a social convention, and much like oh,
we're a new nation, we need a flag how about
we have three stripes. Do you think they should be
vertical or horizontal? Like that's the extent of your choice. Similarly,
I think when designers think, oh, we're going to design
some bills, let's put somebody's face maybe, And so I
(44:27):
think that there is that artistic invention that we tend
to keep using.
Speaker 4 (44:32):
Let me add to that, that is today, if you
log on and you want to check on stable coin,
this and that, and maybe they should be called unstable coin.
Time will tell all of them have their own logos, yeah,
and if you look at them, they have sort of
copied old logos, so that in one way or the
(44:53):
other they try to remind you of something that has
existed in the passed and at more at the anecdotal level.
When I was deputy governor in Sweden went through the
agony of trying to decide whether to join the euro
or not to join the Europe and you know the
end result of that. There was one moment when trying
(45:16):
to create the euro banknotes, about four or five different
potential versions in terms of colors, motives and things like
that were passed around. And all of these were sort
of passed around among in the General Council, which is
in my case essentially politicians, and there was absolute silence
(45:38):
in the room, and it took a while. They were
slowly passed around, and then while one politician broke the
silence because there were no kings on these banknotes, and
he said, but all of them are ugly. And then
I sort of sensed that no euro in this country
(45:59):
at least now.
Speaker 5 (46:03):
If I meant adults on the on the anecdotal and
I mentioned and the need for this physicality. So in
when the currency board in Argentina was in its death
throws two thousand, two thousand and one, a lot of
the promises were really cashtrapped and started issuing the quasi moneyes,
which were legally they couldn't be money, so they legally
had to be effectively they were a bond.
Speaker 4 (46:24):
But they look exactly like a bill, exactly like a bill.
Speaker 5 (46:27):
So to facilitate, you know, the familiarity with the with
the with the users. And in terms of going forward,
I mean, I think this aspect of identification and design
and so on, I think most likely is going to
be like a logo, like like Stephan was mentioning, and
it could be a logo of a central bank that
you check on it up. I think this is most
(46:48):
likely where we're going.
Speaker 6 (46:50):
Can I make one more point that the first journalistic
articles about bitcoin that started to appear in like twenty ten,
twenty eleven are illustrated with diagrams and with sort of
pictures of circuit boards. And it's only in I think
twenty thirteen that somebody who had invested in bitcoin, which
(47:13):
at that point had no value whatsoever, started to manufacture
gold colored trading tokens with a bee with a slash
through it. Then he had a pile of those, which
he was sort of selling to other bitcoin enthusiasts. Somebody
(47:35):
took a photo of a stack of those. I think
it was the Bloomberg photo of the Year for twenty fourteen,
and suddenly everybody started illustrating their articles about bitcoin with
pictures of these, you know, basically hanaka gelt. And it's
in the aftermath of that that people assume that, well,
(47:57):
bitcoin must really be a thing, like what's that thing
saying that you keep seeing photos of? And so when
you tell people that you know, bitcoin is a spreadsheet,
bitcoin is a computer program, they don't believe you because
they've seen the pictures of the shiny gold candy wrappers.
Speaker 2 (48:15):
I actually remember this because I wrote a bitcoin article
in twenty eleven back when I was at the FT,
and I used a picture of the FED because the
headline was I think digital money from real central bank distrust,
because that was the narrative at that time. It was
we don't trust the FED after the financial crisis, We're
going to create this, and then we saw that narrative
(48:36):
change so many times over the years. But just on
this note, I want to ask one more question because
I think it really encapsulates a lot of the discussion
we're having, but on stable coins specifically. So at the moment,
we have a bunch of stable coins from private issuers,
so the tethers of the world and so on. Lots
of central banks are talking about doing their own digital
currencies for various reasons. But how much competition would central
(49:00):
digital currencies be for the private issuers and how should
we think about I guess the attraction of both those
two camps.
Speaker 5 (49:09):
Well, I mean, I think if you hear people from
the stable coin space talk about say, retail central bian
digital currencies not so much holds, but retail, they would
be very much opposed to this, and to me, this
is an indication that they see as a challenge, right
because they are very vocal about speaking speaking against this.
(49:29):
So I think in a way that there will be
competing and there will be competing payment instruments, but of
course they are very different because they are promised to
pay it should buy a sore membersus. The promise to
pay it should buy by a private agent. And the
problem we have plenty of promises to pay it should
buy private agents. And we'll see, you know, like we'll
see if they if they survive. I think it's very
much an open question. Maybe they have a role to
(49:51):
play as part of a payment ecosystem in the future.
Speaker 4 (49:55):
This is kind of a rerun of a conversation that
took place in Many in the late eighteen hundreds, because
back then, in a paper based world, private banks issue
their own paper money and the central bank issued its
paper money. And eventually, after a series and long and
complicated for many years in my country, in parliament, it
(50:18):
was eventually decided to say that it's only the central
bank that issues physical banknotes, and the Banker's Association of
that day basically claimed that the banks were going to
go under if the state was that evil coming up
with that kind of a system, and now it's a
rerun of this thing coming back because the technology has changed.
(50:40):
And ultimately, at the end of the day, as I've
referred to, this is the political value judgment. Either the
political conclusion is that for whatever reason you want the
general public to be able to hold central bank money
given the technology of that day, or you say that
it is enough to sort of just deal with the
(51:01):
back end, and then the back end of the system
sort of backs up. Stable coins. Let me add to that,
And I think that here's a lot of confusion because
to me, I don't really see a major difference between
let's say a stable coin of some sort and a
money market fund. Essentially it's one and the same, And
(51:24):
particularly if you sort of scratch on the surface and
check the legal aspect of what actually has been constructed,
what probably is different is the way you transact because
the legacy system banks, the old banks, all of them
have legacy systems, So you sort of engineer a transfer
(51:45):
of ownership titles in one way in an IT world
and probably a rather old fashioned IT world. And then
you have these new startups and they sort of engineer
those transfers of ownership titles with others and new technologies,
but in terms of the legal setup it is roughly
(52:08):
the same. But I do think that there is a
major difference when you run a money market fund basically
holds let's say, treasuries and deposits with the central bank,
compared to something you call a stable coin. And when
you scratch on the surface, you realize that all of
it is deposited in a bank located in an offshore
(52:32):
financial center.
Speaker 5 (52:34):
And there is even more intan twenty of that, but
because some sailer coins have the reserve managed by money
market funds.
Speaker 1 (52:40):
Right circle for example. But going back to gold, so
obviously it has this magnetic effect on people, but also
people value it, and people value it higher during certain
times of uncertainty or perception of inflation, etc. And it's
don't extraordinarily well this year amid a many headlines, what
(53:00):
is it about gold that to this day people change
what they're willing to pay for it in a sort
of specific way that doesn't really you know, even silver
not to the same degree, although it's volatile too, But
what is it about gold? You think that in twenty
twenty five people reach for it when other monetary instruments
they have questions about, right.
Speaker 6 (53:21):
I mean, I think it's again a fairly simplified version
of history that we'll say gold has always had value.
And one of the first things I tell my students
is that two words that are meaningless when writing about
history are always and never. But nonetheless, people like they
(53:42):
find comfort and being able to say this has always
had value, and so they assume that what they think
they know about the past will hold true in the
imagined future. The way I think about it is da
Vinci's Why do people want a work of art by
(54:02):
da Vinci or Picasso, It's because other people have valued it.
If at some point there's a seismic shift and works
of art by European men are no longer valued, Oops,
well that's the end of that.
Speaker 4 (54:18):
Let me mention two examples going back to nineteen thirty nine,
and it's sort of a bit relevant to what happens
in Ukraine. Presently, Finland was attacked by the Soviet Union
and the gold was transported to Sweden back in nineteen
thirty nine. Sweden, in turn sent some of its gold
to the FED in New York, and the issue is
(54:40):
to following that if you have this sort of idea
that this is more stable than other things, then at
the same time gold is nobody else's dead, and then
you hope that it is more useful than other things
when times are very difficult, and to be blunt, back
in those days, the issue was that you needed the
(55:02):
gold to buy guns, and you aren't so sure what
other types of kind of assets you can monetize to
such an extent that you can actually buy those guns.
Speaker 5 (55:12):
It's not a promise to pay that somehow establish itself
as valuable over time through social convention.
Speaker 1 (55:18):
It's pretty crazy, and it's amazing that the idea that
in a way, the gold held that New York fed
is this obligation of the United States to return it
on demand at some point. And the incredible trust implied
in that that all these countries around the world are
willing to have their gold or at least some of
their gold in a locker in the basement of another
country seems like an extraordinary like social achievement in its
(55:41):
own right.
Speaker 2 (55:42):
But they still want to go check that it's there
every once in a while. That was our special episode
(56:03):
recorded live at Princeton University.
Speaker 1 (56:06):
Tracy a lot of fun. We should try the academic
setting again sometimes.
Speaker 2 (56:09):
Oh yeah, And I gotta say Princeton was beautiful. Just
the architecture was amazing.
Speaker 1 (56:13):
And we can tell, you know, everyone just heard enough.
But it is very funny to me that there's one
thing we take for granted, like the currency is actually
subject to so much debate, and Nolan gets really that
close to like a definitive answer, and that was sort
of a fascinating example of it.
Speaker 2 (56:28):
Then always define your terms, Joe, that's right, all right.
Shall we leave it there.
Speaker 1 (56:32):
Let's leave it there.
Speaker 2 (56:33):
This has been another episode of the Odd Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 1 (56:39):
I'm Joe Wisenthal. You can follow me at the Stallwark.
Follow our producers Carmen Rodriguez at Carmen armand dash Ol
Bennett at Dashbot and kill Brooks and Kilbrooks. From more
odd Laws content, go to bloomberg dot com slash odd Lots.
We're have a daily newsletter and all of our episodes
and you can chat about all of these topics. Twenty
four seven in our discord Discord dot gg slash odd laws.
Speaker 2 (57:00):
And if you enjoy all bots. If you like it
when we try to define what a currency actually is,
then please leave us a positive review on your favorite
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you can listen to all of our episodes absolutely ad free.
All you need to do is find the Bloomberg channel
on Apple Podcasts and follow the instructions there. Thanks for listening.
Hello, Odd Lots listeners. I'm Jill Wisenthal and I'm Tracy Alloway. Tracy,
we're doing another live show and it's right here in
New York City.
Speaker 2 (00:07):
Yeah, this one should be our biggest yet, and we're
going to have a bunch of Odd Lots favorites and
do something maybe a little different to some of our
previous live podcast recordings.
Speaker 1 (00:18):
When the guests are revealed, the show is going to
sell out right away, so you should really just go
get your ticket right now. It's June twenty sixth. It's
at Record NYC, and you can find a ticket link
at Bloomberg dot com slash odd Lots or Bloomberg Events
dot com slash odd Lots Live and why.
Speaker 2 (00:34):
We hope to see you there.
Speaker 3 (00:38):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:54):
Hello and welcome to a special episode of the Odd
Lots Podcast. I'm Tracy Alloway.
Speaker 1 (00:59):
And I'm Wishal Joe.
Speaker 2 (01:01):
This is special. I think this is the first time
we've done this.
Speaker 1 (01:04):
We're not used to like, you know, we like to
talk to academics certainly, but we've rarely ever done anything
like in the proper academic setting, in the types of
seminars where you know, academics are on their home turf.
Speaker 2 (01:18):
That's right. So we were invited by the Princeton Economic
History Workshop to an event called how to Write the
Biography of a Currency. I love that topic and that name.
And we were invited to moderate a panel specifically on
how to define a currency? How do we define what
actually is money and what it does and all that
(01:40):
good stuff. And we had an amazing panel.
Speaker 4 (01:43):
That's right.
Speaker 1 (01:44):
So we had three guests. We talked to Inyaqui al Dessoro,
an economist at the Bank for International Sentiments, Rebecca Spang,
a professor at the University of Indiana, Bloomington, and Stefan Ingves,
the former head of the Sfeti Jerichsbank, the Central Bank
of Sweden from two thousand six twenty twenty two. So
take a listen to the three of them.
Speaker 5 (02:04):
So I mean solo, and I'm a principal economist at
the banker International Settlements.
Speaker 6 (02:09):
Rebecca Spank, professor of history at Indiana University.
Speaker 4 (02:13):
Stefan Ingvest, a former governor of the Swedish Central Bank,
the ricks Bank.
Speaker 2 (02:18):
Should we go down the line, Shall we start with
Stefan how to.
Speaker 4 (02:21):
Write a biography of a currency, or actually maybe how
to define a currency. And let me start by saying
that it's a privilege to be here and discuss money,
or actually I think in the course of the day
money is using the plural. It just so happens that
forty seven years ago, when I was visiting a graduate
(02:42):
student here in Princeton, I took a course in monetary
theory and I got hooked. And little did I back
then know that with my finished background, I would end
up leading the all of the central bank, the ricks Bank,
and also became one of its longest serving governors. So
(03:03):
quite a journey. And with that as a background, what
a privilege to be back as a practitioner. That's my
background when I'm talking about money today and what I
have sort of experienced and concluded over the years. Let
me start by saying that money is a social convention.
Money is something about what we have in our heads.
(03:26):
And this is also why we have moved over the
centuries from seashells to something on a hard drive or
nowadays maybe in the cloud. And then that of course
begs the question in terms of changing technologies, what is next?
Today money is an abstraction, but we still talk about
(03:50):
money in terms of something that we can both see
and touch. And it's remarkable that each and every time
in my bank, when a new group of PONS politicians
were appointed to the General Council, they always wanted to
see the gold, not talk about the money as such.
It was always can we get to see the gold?
(04:14):
And that has something to do with this issue that,
on the one hand, money is an abstraction, while on
the other hand, we're sort of wired in our heads
in such a way that we want to touch things.
We can talk about money in many different ways, and
we can talk about money at the micro level and
(04:35):
kind of the monetary plumbing, or we can talk about
money at the macro level, and at the macro level
it's more sort of money tied to economic activity in
one form or the other, and then it's actually economic
activity in the aggregate. And you can also talk about
money as something somewhere in between money as part of
(04:57):
the financial plumbing. And that's kind of where I decided
to say a few things today, and my remarks, I mean,
they're really really given my background coming out of the
FIAT money world. When we talk about money, I think
a helpful distinction is also to try to make a
(05:18):
distinction between public sectremoney versus private sectremoney. And also when
it comes to monetary policy, which I'm not talking about today,
Monetary policy is quite a lot about how to execute
some kind of monetary control in this dual environment where
(05:39):
we live today. One simple way of explaining that in
order to maintain monetary control in one form or the
other is basically to say that that requires an exchange
rate which is one to one between public sector and
private sectremoney, and if that is not the case, then
(06:01):
the whole thing collapses. And countries of today where you
can watch this is, for example, Zimbabwe and Venezuela, and
you know what happened in those cases. Another way of
describing this, and it's somewhat similar, and I do think
it matters, but it's almost never described in this way
is to talk about it in terms of front end money.
(06:23):
That is kind of what we see and what we
think that we are using, and today it's basically what
you see on the screen of your computer and when
you use an app, and that kind of means some
vague sense represents money to us. And the other version
of it is what I call backend money and ultimately
(06:44):
back and money is central bank money in one form
or the other. It's a height to the payment system.
It could be a central bank digital currency, could be
a deposit or something else. And it doesn't really matter
if it's one ledger, if it's this due to ledger technology,
it's a token or what. It's really the principle that
(07:05):
I'm talking about. But also when technology is change, what
happens is that all strategic issues come back. And many,
many of you know what has happened over let's say
a thousand years or something like that when it comes
to money. And my conclusion from that is that since
money is a convention, there is almost nothing new under
(07:27):
the sun when it comes to money. But technologies do change,
and that forces us to get back to all issues
that others have grappled been in the past. A gross
simplification is to say the following that back in the
eighteen hundreds, and that's kind of the mindset that we
have inherited today when we talk about money, everything was
(07:49):
on paper, and in the late eighteen hundreds in a
very large number of countries, the central bank ended up
being the sole issue of a physical bank. In the future,
we have to get used to the idea that nothing
will be on paper, and that means that we have
to get back to all issues and think hard about
(08:13):
how do we reestablish the moneyness of monies in this
new environment when we have to think about this, and
at the same time, it's absolutely obvious that nowadays that
money is also part of the state. Money is tied
to a nation in one form or the other. Not
(08:33):
necessarily every work, particularly not if you have destroyed the
value of your own money. But at the same time
you just have to accept the fact that parliaments and
politicians have views on money, and that raises the issue
going forward whether we should have a central bank digital
currency or not, despite the fact that we cannot see
(08:56):
what it should look like. Are we talking retail, Are
we're talking wholesale? Ulish can talk at length about that
because he is presently working on them, and this creates
an interesting environment going forward when it's not about one
currency dominating or not. But it's a fact that different
(09:16):
nations come to different conclusions on this as of today,
because look at what's going on in the US today.
Basically more and more of it seems to be pushed
to the private sector. In the EU they're working hard
on a central bank digital currency. In India they have
been extremely successful establishing their UPI framework, which kind of
(09:38):
ties central bank money to the payment system and ties
also front end to back end using my vocabulary in
a very efficient way. Same thing is going on in
Brazil and China is working hard on their project. And
this projects actually will not be identical, and it's basically
(09:59):
too early you tell which will work and which won't
work and what it really does in various economies. And
this means that one way you're looking at this is
to call it the great game of our monetary future
in a one hundred percent digital world, whatever that means
going forward, and that means that in this environment we
(10:22):
need to define or maybe redefine the role of the
state in money space, and that will, of course, also
in different countries, affect how we actually execute monetary policy
in different different ways. What I do think matters here
when it comes to money is that one is of
course the stability today it's called inflation targeting, you can
(10:45):
call it whatever you like in the old days. And
the other one is what I call transactional efficiency, because
if it's impossibly difficult to use your wonderful currency. No
one will use it because it's just so hard to
use use it. And what this really means is that
new technologies bring old issues to the fore. And one
(11:07):
extreme way of expressing this in a short form is
to basically say that today, with a fairly high likelihood
and old fashioned howallah transaction is probably executed in an
it world in one form or another. It's also a
fact when technology is changed. And this is really really
(11:27):
what we see today that it people do not know
a lot about money, and money people do not know
a lot about it, and that creates a lot of
confusion from time to time. And then in addition to this,
when you do this, then somewhere in the middle you
also have to have lawyers and a legal framework. So
you have it. You have a legal framework, and you
(11:50):
have economists and jointly this is actually what is going
to define how we use money in the future and
what this is all about. And then back to the
holy you're writing a biography, so I do think that
such a biography should also include something about where we
are today and maybe speculate a bit where we are
(12:13):
heading into the future. Thank you.
Speaker 6 (12:16):
So Stephan just said that money is a convention, and
so there's really nothing new. Technologies just present the same
questions in different guises. I would say that conventions are
socially determined and societies change, and so the convention for
issuing money, say in the ancient Mediterranean, is going to
(12:40):
be different than the convention in the Middle Ages, and
is going to be different again from the conventions under capitalism,
as Chris was just talking about. I think another thing
to think about is that money, like any technology, when
it's working well, we don't really pay attention to it.
(13:02):
It's only if the power goes out that we suddenly
realize we're in a room that has electricity, and normally
it's just sort of humming along in the background. So
I think with currency, we and here I mean ordinary
users of money, not in fact central bankers, but the
great majority of people do not think of money as
(13:25):
something that has a biography. It's not born, it doesn't
go through adolescence, reach adulthood, then be an old age. Certainly,
ordinary people don't imagine money as something that's going to die.
If they are fortunate, if they are privileged, there comes
a point in their lives when they start to think
about what they are going to do with their money
(13:46):
when they are dead. But implicit assumption there is that
the money itself is immortal. After all, that's what makes
it a store of value. So a fully functional currency
in the mind of the people who use it seems
in fact to be outside of history, all right, that
it's not going to have a history or a biography.
(14:09):
And on the other hand, I will say as a
historian that even using the word currency to refer to
the monies used one place and not another is in
no way eternal or immortal. Locke John Locke, the famous philosopher,
(14:30):
in his Some Considerations of the Consequences of the Lowering
of Interest in Raising the Value of Money sixteen ninety two,
uses the word current twenty eight times, but never the
word currency. So the way we think about currency is
itself the product. And this ties again to something Stephan
(14:50):
just said of late eighteenth and nineteenth century revolutionary nationalism.
So a rupture with the past. It's a revolution and
the growing naturalization of the nation state. The assumption that, well,
of course there are nations and they have states. This
is a historically specific development. It wasn't a concept people
(15:11):
had in the Middle Ages. It doesn't make sense if
you think about the very long history of China before
the Republic, and it may not be true in the future,
but in the mid eighteen hundreds, having your own money
was one of the things, along with a flag, a
standardized language, an anthem, that established that some group of
(15:35):
people got to be a nation. And as with so
many features of nation thinking, a currency is part of
how a bounded community is imagined and defined. Dollars on
one side of the border, pesos on the other. I mean,
that's the theory. In practice, of course, it's not always
(15:57):
the reality. I grew up in Maine and there Canadian
coin circulated on par with American and you didn't even
notice whether they were Canadian dimes or US dimes. They
were just all dimes. So, prior to the debates in
Great Britain occasioned by the Bank of England's suspension of
(16:18):
payments in seventeen ninety seven and then the eventual resumption
decades later after the Napoleonic Wars, currency was a quality
that a money object might have in some markets, and
not having others currency meant that it was widely accepted
as a means of exchange. And what's crucial here is
(16:39):
that the coins are the bills that quote unquote past
current or were discounted at a predictable rate in any
given place, were not necessarily expected to be units of
account or long term stories of value. Current, after all,
is a reference to time as well as to the
forces that move goods across the sea and actually lock
(17:02):
in some considerations, makes lots of ponds on current in
the sense of a money that passes current and current
in terms of how you move things through the ocean.
So think a little bit more about what it would
mean for a mode of payment or a means of
exchange not to be the unit of account. In early
modern France, so seventeenth eighteenth century, before the Revolution, the
(17:26):
common large denomination coin was an AQ, and it was
called that because it depicted the aquson the shield of
the French monarchy on one side of it. But accounts
were kept in leave pounds. There was nothing circulated that
was called a leave and no denomination indicated on the AQ,
(17:48):
so the coin was called that because of what it
looked like. Was it worth three leave four four and
a half? It was up to the king to determine,
and in fact, in periods of political disruption, often in
periods of war, the king could revalue the circulating medium.
Louis the fourteenth did it a lot in the final
(18:10):
decades of his life. So there was a gap between
what circulated and how people counted, and that's not just
a weird French anomaly. No pennies and hardly any shillings
were minted in eighteenth century Britain, but people went on
keeping their accounts in pound shilling pence even if they
(18:31):
had none of those things. Another distinctive feature of the
early modern period is that it was up to the
private sector to determine whether to bring gold and silver
to the mint to be stamped as money or not,
and that gold and silver being brought to the mint
might be newly mined or from the Americas, or it
(18:53):
could be coins stamped by some other sovereign. Economic growth
in eighteenth century franch in Britain was largely made possible
by private money, bills of exchange, promissory notes from one
merchant to another, and all sorts of short term notes
written by one government office to another, and that model
(19:14):
of a private choice continued to inform debates during the
French Revolution, as I suspect everybody knows, the National Assembly
issued paper backed by the value of nationalized church properties.
These are the assigna. But it didn't mandate that the
(19:35):
assignac circulate on par or at any particular exchange rate
for the coin still in circulation, and many people argued that, well,
money is a merchandise like any other, and it was
up to the money changers to say, well, I'll give
you three AQ for your assign of twenty five leave,
(19:57):
or I'll give you ten. That was up to the
market to determine. So a century after this period, with
the rising prominence of classical and neo classical economics, Europeans
generally reacted to this sort of monetary variety and the
tension between private and public issuers as a sign of
(20:21):
backwardness and inefficiency, even though it had been the norm
in Europe less than one hundred years earlier. So when
they encountered it in the Qing Empire or in South Asia,
they immediately denounced it. I think in part because they
realized that as long as the sort of local knowledge
was relevant, they were never going to be able to
(20:43):
outcompete local users so they impose this new European model
of one country won money, what some people have called
the Westphalian logic, on the rest of the world. So
there are other things that I can say. I think
what I want to end on is that the common
(21:04):
sense understanding of money as something without a history, something
immortal or eternal, is of course a fantasy. But very
often when histories of money get written, they nonetheless focus
on those elements, the theories of economists, the intention of planners,
(21:24):
that do themselves have some claim on immortality in that
they're at least written down otherwise recorded, and can be
found on the shelves of libraries or in the cartons
of archives. What that history misses is the actual day
to day practice of money, what ordinary people are doing
(21:45):
with their money, and how they're thinking about it. That
is a much more difficult history to write, but it's
the one that I am committed to write it.
Speaker 5 (21:53):
Thank you, okay, So let me first start by by
thanking Harold and Brendan for for inviting me, for giving
me a chance of percent here. This fantastic event to me,
it's a real honor to share the panel with with
Rebeca Stephan the tower in fear of course, in the
central banking community. And if I'm still your own phrase
with the with the perfect moderators. So before I begin,
(22:13):
let me start by reminding you that these are my
views and not those of the of the Bank for
International Settlements. I would like to start by saying something
that is probably very uncontroversial, which I think money is
one of the most, if not the most consequential and
impactful social technology that was ever by humanity. And as
a monetary economist, of course, I tend to think as
this as the most fascinating as well. And I mentioned
(22:36):
social because I think this is something that came up
in the in both Stephan and Rebecca's comments that money
is a social and institution that is sustained by a
share expectation that money that is accepted in payments today
is going to be accepted in payments tomorrow. And this
requires trust in money. This requires trust in the stability
of money, and also this requires trust in the ability
(22:58):
of money to elastically scale to meet the needs of
a growing economy. So I think two things then follow
from this perspective. The first is the centrality of money.
Many economies often conceive of money as a veil, that
sort of mask and underlying real world of commodity production
and exchange. I don't share this. I don't share this view,
and I think, like probably like many people in the room,
(23:19):
I conceive of money as the essence of a world
of interlocking promises to pay. So Stephan also mentioned tokens,
and then Michael, Yes, I mentioned organization quite prominently in
the dinner speech, and I think it's actually possible to
conceive of money as the primal or primore. Their original
organization is the organization of the credit and that relationships
(23:39):
that bind all of us together through the financial commitments
that we make that we make to each other. So
as the first element centrality of money's second element is
the emphasis on payment. So money is, as far as
I conceive it, first and foremost, means of payment, which
which is meant to say, a means of certainment. And
I think this is important because it gets me in
some way, after dancing around the concept of what is money,
(24:01):
to start to define money a bit because it points
to a key qualitative distinction between money and credit, between
a means of payment or a means of settlement and
a promise to pay. So credit is a promise to
pay money which effectively delays finance settlement, and money is
a way to extinguish credit, to extinguish credit, sorry fulfilling
that obligation when basically when settlement comes to and in
(24:25):
this sense, money is better than credit, especially in crisis,
which is something that goes along what you were mentioned
in terms of how people use it. So people might
not understand it in this terms, but they understand very
intuitively that money is better than credit in crisis, and
as coming from an emerging market, I can tell you
this is very much the case. Now, this still makes
(24:45):
the question what is money then? And I think my
answer as an economy should not surprise anyone, and it's
going to be underwhelming. It depends. It depends, because I
really do think it depends. It depends on who issue
the promise to pay. It depends on where that issue
stands in the hierarchy of is to pay, and also
who holds that claim. So I think perhaps it's better
to talk about moneyiness of these various instruments, these various
(25:07):
promises to pay, and the hierarchical arrangement of the promise
is to pay, so bank reserves at the central bank
and cash are the ultimate means of payment. They are
money for banks, and in the case of cash, of
course there are money for all of us. Bank the
posits are in terms of form of credit because we
have a promise to deliver cash, to pay cash, or
to confer payment finality through ultimate settlement in the central bank. Yes,
(25:31):
as we know from our everyday experience, they are money
to us. Of course. Now I will not go through
the rabbit hole of discussing lower level issues of a
hierarchy of money, but I do want to highlight the
centrality of the price that connects the two highest forms
of money, and that is part which you discuss in
the one to one relationship between front end and back
end money, if you will. That's the price of the
(25:54):
posits in terms of reserves and cash. This in the
context of central current central banking discussions is usually referred
to us as the singlens of money, following the expression
by relate to mass. And it's the key to sustaining
the trusting money that I was that I mentioned in
my opening sentences, And of course in modern economies there
(26:15):
are various institutional and legal mechanisms and arrangements that underpin
trust and the credibility of all of these promises to pay,
most notably underpin the underpinning power. But we should always
bear in mind that we are always talking about promises
to pay higher forms of money. And I think what
this means is that as a matter, as a matter
of modern modern practice, it's basically impossible to talk about
(26:37):
money in full isolation from the government and the law.
But I would also like to highlight that as a
matter of both principle and past practice, this is not
the case of this is also something that we should
We should barry money even in more practice. As we
all know, most money is dead, which means most money
is promises to pay that are issued largely by private agents.
And there is this famous phrase by by Minski right
(26:59):
that one can create money and the problem is to
get it to get it accepted. So the appeal of
issuing of vision liabilities that can circulate us money that
can circulate as a means of payment is we are
kind of almost like a force of nature, and these
issues materializes time and time again, historically mostly through private initiative.
And the challenge then is after issuing this promised to
(27:20):
pay and to borrow again from Minsky, is to obtain
validation quote unquote from the for those emerging destructures that
arise from these promises to pay. And this validation always
comes from higher levels in monetariy hierarchies, and in the
limit they come from the top of the MOUNTI hierarchy,
meaning central banks. And we have seen this, for example
developments along these lines in the context of offshore dollars
(27:42):
or euro dollars. We have seen it with money market funds.
We are seeing it to some extent as well these
days with stable coins. And I think the example off
shore dollars also allows me to close by answering and
another of the questions that were posted by Brendan to
get us started and thinking about these issues, which is
the mapping between the currency usage and the boundaries of
the sovereign that is responsible for that unit of account.
(28:04):
And here what I would like to know that is
more money is also global money. And here, of course
there are hierarchies as well. And just ahead of coming here,
I had a quick under to look at the the
BS banking statistics and as oft the end of last year,
there were thirteen point five trillion of dollar liabilities booked
outside of the US. There were two point seven trillion
euroe nominated the liabilities book outside of the Euro area
(28:26):
six hundred and seventy billion or so for four pounds
and yeah, and of course, yeah, this is lobal money
that is arranged as well hierarchically, and it goes certainly
beyond the boundaries of what the issuers expect.
Speaker 4 (28:39):
So let me stop there.
Speaker 1 (28:56):
Here's more from our conversation on how we define a
currency at Princeton University.
Speaker 2 (29:01):
All right, so I hesitate to say this in front
of a group of academics, but I asked chat Gpt
what the traditional definition of money actually is according to economists,
and it said the three functions that we've basically been
talking about today, unit of account, transaction method, store of value.
Does everyone here agree with that broad definition or if
(29:24):
you had the option to tweak it and change it,
what would you do.
Speaker 1 (29:29):
We're going to keep the silence in.
Speaker 2 (29:31):
Maybe we're already done. This is the episode we've defined it.
Speaker 6 (29:36):
I think it's important to keep the means of exchange,
mode of payment differentiated, not to just collapse them together
into transaction, because I think that ordinary people when they
imagine a transaction. The default setting is still the fable
(29:56):
of barter, and so they assume that any transaction is
hap in the market. But what this whole conversation is
highlighted is the role of the state in moneyness, and
so you need that mode of payment distinguished from means
of exchange, so that people recognize that some payment you
don't quote unquote get anything back, say when you're paying
(30:20):
a parking fine.
Speaker 4 (30:21):
I do think that there are instances when you actually
can separate them despite the fact that this is sort
of how we usually represent money, and apparently in an
ai world that's also the way it is. And let
me give you one example, particularly in cases where you
have had a lot of inflation and then for various
reasons you decide to reissue your money by taking out
(30:46):
x number of zeros. In those instances, it takes years
and years actually before you stop using the old nominal values.
And a good example that I know of when I
was a kid, that happened in the case of Finland,
and when you started discussing what the value of a
(31:07):
used car was, then you always reverted back to the
old way of arguing about things and adding a few
zeros because that was familiar to everybody. But of course
in most cases that's not how you do it. But
it's not absolutely necessary to tide history together.
Speaker 5 (31:25):
Yeah, I would share that a bit. I think that
probably became clear to me. Means of payment or means
of settlement, its central to me. This is the driving,
the driving logic of everything that said. To be able
to have an arrangement of what are we going to
set alone, you need to have a unit of account, right,
so that kind of logically preceeds precedes that. But in
terms of store of value, I think these are kind
(31:47):
of derivative things that follow from a minim of account
or unit of account and means of settlement.
Speaker 2 (31:53):
Joe, I'm sure some people might be worried that store
value seems to be the least least important aspect to money.
Speaker 1 (32:00):
Actually, this sort of fits in with where I was
going next and stuff on. Obviously you talked about the
politicians wanting to see the pile of gold, which is
funny in a way but also still probably revealing. And
obviously people are into gold again these days. Maybe we'll
get back to that, but it occurs to me, like
you know, we think it's dollars convention and back by
various things, but also it's back by implicitly a promise
(32:24):
to be able to buy a basket of goods that
only gets two percent more expensive every year, this basket
of goods and services. And I'm curious, like you know,
in the broad history of like what people call money
or what people call currency, obviously it's not always gold,
and it's not always the specific basket that might be,
you know, the PCE. But how common throughout history is
(32:46):
this presumption that there will be an issuing authority that
has some redemption, either directly in the form of taking
it to the central bank and then getting a coinback,
or being able to take it out into the marketplace,
with the expectation that there's some stable stock of goods
and services that can be redeemed for it.
Speaker 4 (33:05):
I think that when Rebecca sort of said that we
think about money money forever, and we combine that with
in akis reflection, the singleness of money, and that's sort
of how we think about money in kind of our
daily lives. But the fact of the matter is that
history tells us that despite that assumption, when we buy
(33:30):
things on a daily basis, once every thirty forty years
or something like that. Things happen, and then we sort
of try to recreate new money in one form or
the other. So in a longer time perspective, there is
maybe less stability than our perception of total stability in
(33:52):
the near term.
Speaker 6 (33:54):
The idea that there's some stable stock of goods that
you can buy with your money sound to me much
more like an assumption of the moral economy than of
the market economy. In a market economy, producers are going
to compete, and some things may get cheaper, some things
(34:15):
may get more expensive. Since we don't have perfect markets,
we often have monopolies. And so it's curious to think
about how that eighteenth century moral economy idea that there
are certain goods that are so valuable to the functioning
of society that they ought to have a constant price,
(34:36):
and you ought to always be able to get bread
for to sue a pound, that idea, which then so
many economists have said no, no, Supply and demand will
shape the cost of bread, and yet as consumers we
still have moral economy gut reactions to changes in the
(34:57):
price of eggs or gasoline.
Speaker 5 (35:00):
I would add, the store of values is kind of
fundamental It's just the way I would understand how many works.
It starts from the premise that it's a means of payment.
But at the same time, because as I was saying,
this is basically a way of promises to pay, and
those promises to pay are sustained with trust. And if
you don't have trust in the ability of that currency
(35:21):
to basically maintain this purchase in power all the time,
then the whole trust edifies collapses. I'd like to think
I'm not that old, but I'm old enough to vividly
remember my own experience with hyperinflation in Argentina, and then
trust is broken and it's very hard to recover. And
that's the complete underminey of the store of value function.
(35:41):
So I think it is essential. That's why price stability
is so important.
Speaker 2 (35:46):
Rebecca, I wanted to ask you this specifically, but since
Joe brought up gold, both of us have been lucky
enough to take some fuel trips recently, and we went
to the Chicago FED and we saw their cash operations,
so billions and billions of dollars stacked in their vaults.
We went to a jewelry store in New York recently
where we got to hold some not very tasteful pieces
(36:06):
of jewelry, big necklaces and things like that, and we
were all just fascinated by this. And I think there
is something that's just different about seeing billions of dollars
in cash or potentially gold versus seeing a line of
zeros on a computer account or something like that, although
I've never personally seen that either. Talk to us about
how our relationship with money actually changes depending on the
(36:29):
physicality of money, because I know governments have often consciously
thought about this. They think about the metal content in
their coins, or they think about are we going to
print on.
Speaker 6 (36:38):
Silk or basic paper?
Speaker 2 (36:40):
So clearly this is in people's minds, right, This is.
Speaker 6 (36:43):
In people's minds. And it seems to me really important
to remember that even in a world of if it
ever existed, a world of completely digital money, there would
nonetheless be material substrate that made that possible. So it
(37:03):
is impossible to have cryptocurrency or central back digital currencies
or anything else unless you have a way to generate electricity,
you have a way to plug in your computer, you
have semiconductors, you have chips. So we tend to think
there's a fable that money used to be physical and
(37:26):
it's become increasingly abstract, and some people think that's a
story of progress, and other people think that's a story
of decline. But the reality is that there's always an
interaction of the material and the symbol making that goes
into deciding that this is money and this isn't, and
(37:50):
over time, in different places societies configure that differently, but
it's not a linear movement in one direction or the other.
Speaker 2 (38:01):
Stephan, since you've seen the gold, you want to take
that question as well.
Speaker 4 (38:06):
Yeah, I mean, one way to think about it is
that as we all have sort of alluded to, is
that we are wired to think about things in a
physical sense, and that's why it sort of feels good
to try to lift the gold in it and touch it,
while it's harder actually when we think about and we
(38:26):
talk about fiat money, because fiat money it's an abstraction
you can't touch, necessarily touch it. It can be electronics
strictly electronic, and that's basically about trust in those who
run the system, because that's what it is. And either
you sort of trust them because you say that they
(38:49):
have done this for a long long time, and inflation
seems to be pretty stable, so this probably works. Or
to the contrary, in some countries they have the system
many times over again, so it doesn't really matter who
sits there. When it comes to the individuals, you just
don't trust them. And then what you do instead is
(39:11):
that you buy gold or you hold physical dollar bills
or euro bills in the mattress, because that's your way
of buying an element of insurance. And this is very,
very difficult to deal with. But let's at the same
time remind ourselves that also in the old days, gold
wasn't always gold, and all old emperors and kings figured
(39:37):
that out that went out a long long time ago
by diluting the amount of gold that they claimed they held.
So it's not that everything was better in the old
days just because you held gold.
Speaker 6 (39:49):
I've been thinking about the metaphor of wiring and plumbing,
which are frequently used in talking about money, and I
just want to point out again that both why and
plumbing are things made by humans. They are not naturally
existing phenomena. So if we say we are wired to
do this, or the monetary plumbing works in a particular way,
(40:10):
what we're talking about is the sedimentation of social norms
and cultural assumptions that we no longer recognize as such
because they've been repeated so many times. But in a
moment of dislocation, in a period of say, political revolution,
(40:31):
then we suddenly see those for what they are. And
then a bizarre thing happens, which I mean you just
said people lose trust in the system and so they
want an object. Like how weird is that if society
is collapsing around you and you think, oh, that's okay,
I'll just have some I have my shiny rock. I
have my shiny rock. Like I don't know, I'd sort
(40:54):
of rather have functioning society and no shiny rocks. Yeah.
Speaker 5 (40:58):
The problem is that quite often this individual users it's
not a choice. You you react and I like your
mattress example, because that's you know, I can't relate to that.
And I think this becomes very clear right when when
when you have the crisis goes back to what I
mentioned that money is better than create and going to
to your book. People have an intuitive understanding of this
(41:20):
because in crisis they run away from creat and go
for money. And it's not that when they take money
out of the ATM say like, oh, I am converting
a claim on my bank to a claim on the
central They have no clue, but but they know. I
mean when when when the going gets rough they take
the money out of the bank in the case two
thousand and one Tina, or or they just go and
(41:40):
buy dollars if they if the bank is collapsing.
Speaker 2 (41:46):
H We are back and continuing a conversation on how
to define a currency, recorded live at Princeton University.
Speaker 1 (42:05):
I've seen the gold at the New York Fed's bank vault,
and Tracy, as you mentioned, we went to the jewelry
store in the Diamond District, and obviously gold has this
sort of effect on people still today. But something I'm
curious about Tracy asked about the physicality of money. Basically,
any form of currency around the world, the designers of
the physical note or the coin usually has some like,
(42:29):
you know, attempt to conjure up the sort of mystical
and spiritual history of the country in question that's issuing it.
And I'm just sort of curious, like from a design perspective,
a like how much of that is this attempt on
some levels sort of like rekindle that excitement that you
feel when you see gold, but also thinking forward as
(42:49):
money gets more and more digital. I'm curious the three
of you, like, do you think design on some level
something that like harkens back to the identity of the
nation will always be an aspect of digital money, or
always be an aspect of money, even as it gets
more and more strictly digital.
Speaker 6 (43:06):
I think a really interesting example to think about in
terms of design is the euro which specifically had to
be non national, but nonetheless wanted Its designers wanted it
to look more or less like money had looked, but
(43:27):
it couldn't have the symbols of any particular nation. So
the make believe bridges on the bills, which are not
bridges in any particular place. One of them was then built,
I think in Mastricht actually, and actually the European Central
Bank put out a wonderful flyer document of other designs
(43:53):
that were not chosen, including a whole series of euro
notes that would have had cats on them.
Speaker 2 (43:59):
So they should have used those, Yeah, they really should have.
Speaker 6 (44:02):
They're incredibly cute. So I think the thing here is
that again, this is a social convention, and much like oh,
we're a new nation, we need a flag how about
we have three stripes. Do you think they should be
vertical or horizontal? Like that's the extent of your choice. Similarly,
I think when designers think, oh, we're going to design
some bills, let's put somebody's face maybe, And so I
(44:27):
think that there is that artistic invention that we tend
to keep using.
Speaker 4 (44:32):
Let me add to that, that is today, if you
log on and you want to check on stable coin,
this and that, and maybe they should be called unstable coin.
Time will tell all of them have their own logos, yeah,
and if you look at them, they have sort of
copied old logos, so that in one way or the
(44:53):
other they try to remind you of something that has
existed in the passed and at more at the anecdotal level.
When I was deputy governor in Sweden went through the
agony of trying to decide whether to join the euro
or not to join the Europe and you know the
end result of that. There was one moment when trying
(45:16):
to create the euro banknotes, about four or five different
potential versions in terms of colors, motives and things like
that were passed around. And all of these were sort
of passed around among in the General Council, which is
in my case essentially politicians, and there was absolute silence
(45:38):
in the room, and it took a while. They were
slowly passed around, and then while one politician broke the
silence because there were no kings on these banknotes, and
he said, but all of them are ugly. And then
I sort of sensed that no euro in this country
(45:59):
at least now.
Speaker 5 (46:03):
If I meant adults on the on the anecdotal and
I mentioned and the need for this physicality. So in
when the currency board in Argentina was in its death
throws two thousand, two thousand and one, a lot of
the promises were really cashtrapped and started issuing the quasi moneyes,
which were legally they couldn't be money, so they legally
had to be effectively they were a bond.
Speaker 4 (46:24):
But they look exactly like a bill, exactly like a bill.
Speaker 5 (46:27):
So to facilitate, you know, the familiarity with the with
the with the users. And in terms of going forward,
I mean, I think this aspect of identification and design
and so on, I think most likely is going to
be like a logo, like like Stephan was mentioning, and
it could be a logo of a central bank that
you check on it up. I think this is most
(46:48):
likely where we're going.
Speaker 6 (46:50):
Can I make one more point that the first journalistic
articles about bitcoin that started to appear in like twenty ten,
twenty eleven are illustrated with diagrams and with sort of
pictures of circuit boards. And it's only in I think
twenty thirteen that somebody who had invested in bitcoin, which
(47:13):
at that point had no value whatsoever, started to manufacture
gold colored trading tokens with a bee with a slash
through it. Then he had a pile of those, which
he was sort of selling to other bitcoin enthusiasts. Somebody
(47:35):
took a photo of a stack of those. I think
it was the Bloomberg photo of the Year for twenty fourteen,
and suddenly everybody started illustrating their articles about bitcoin with
pictures of these, you know, basically hanaka gelt. And it's
in the aftermath of that that people assume that, well,
(47:57):
bitcoin must really be a thing, like what's that thing
saying that you keep seeing photos of? And so when
you tell people that you know, bitcoin is a spreadsheet,
bitcoin is a computer program, they don't believe you because
they've seen the pictures of the shiny gold candy wrappers.
Speaker 2 (48:15):
I actually remember this because I wrote a bitcoin article
in twenty eleven back when I was at the FT,
and I used a picture of the FED because the
headline was I think digital money from real central bank distrust,
because that was the narrative at that time. It was
we don't trust the FED after the financial crisis, We're
going to create this, and then we saw that narrative
(48:36):
change so many times over the years. But just on
this note, I want to ask one more question because
I think it really encapsulates a lot of the discussion
we're having, but on stable coins specifically. So at the moment,
we have a bunch of stable coins from private issuers,
so the tethers of the world and so on. Lots
of central banks are talking about doing their own digital
currencies for various reasons. But how much competition would central
(49:00):
digital currencies be for the private issuers and how should
we think about I guess the attraction of both those
two camps.
Speaker 5 (49:09):
Well, I mean, I think if you hear people from
the stable coin space talk about say, retail central bian
digital currencies not so much holds, but retail, they would
be very much opposed to this, and to me, this
is an indication that they see as a challenge, right
because they are very vocal about speaking speaking against this.
(49:29):
So I think in a way that there will be
competing and there will be competing payment instruments, but of
course they are very different because they are promised to
pay it should buy a sore membersus. The promise to
pay it should buy by a private agent. And the
problem we have plenty of promises to pay it should
buy private agents. And we'll see, you know, like we'll
see if they if they survive. I think it's very
much an open question. Maybe they have a role to
(49:51):
play as part of a payment ecosystem in the future.
Speaker 4 (49:55):
This is kind of a rerun of a conversation that
took place in Many in the late eighteen hundreds, because
back then, in a paper based world, private banks issue
their own paper money and the central bank issued its
paper money. And eventually, after a series and long and
complicated for many years in my country, in parliament, it
(50:18):
was eventually decided to say that it's only the central
bank that issues physical banknotes, and the Banker's Association of
that day basically claimed that the banks were going to
go under if the state was that evil coming up
with that kind of a system, and now it's a
rerun of this thing coming back because the technology has changed.
(50:40):
And ultimately, at the end of the day, as I've
referred to, this is the political value judgment. Either the
political conclusion is that for whatever reason you want the
general public to be able to hold central bank money
given the technology of that day, or you say that
it is enough to sort of just deal with the
(51:01):
back end, and then the back end of the system
sort of backs up. Stable coins. Let me add to that,
And I think that here's a lot of confusion because
to me, I don't really see a major difference between
let's say a stable coin of some sort and a
money market fund. Essentially it's one and the same, And
(51:24):
particularly if you sort of scratch on the surface and
check the legal aspect of what actually has been constructed,
what probably is different is the way you transact because
the legacy system banks, the old banks, all of them
have legacy systems, So you sort of engineer a transfer
(51:45):
of ownership titles in one way in an IT world
and probably a rather old fashioned IT world. And then
you have these new startups and they sort of engineer
those transfers of ownership titles with others and new technologies,
but in terms of the legal setup it is roughly
(52:08):
the same. But I do think that there is a
major difference when you run a money market fund basically
holds let's say, treasuries and deposits with the central bank,
compared to something you call a stable coin. And when
you scratch on the surface, you realize that all of
it is deposited in a bank located in an offshore
(52:32):
financial center.
Speaker 5 (52:34):
And there is even more intan twenty of that, but
because some sailer coins have the reserve managed by money
market funds.
Speaker 1 (52:40):
Right circle for example. But going back to gold, so
obviously it has this magnetic effect on people, but also
people value it, and people value it higher during certain
times of uncertainty or perception of inflation, etc. And it's
don't extraordinarily well this year amid a many headlines, what
(53:00):
is it about gold that to this day people change
what they're willing to pay for it in a sort
of specific way that doesn't really you know, even silver
not to the same degree, although it's volatile too, But
what is it about gold? You think that in twenty
twenty five people reach for it when other monetary instruments
they have questions about, right.
Speaker 6 (53:21):
I mean, I think it's again a fairly simplified version
of history that we'll say gold has always had value.
And one of the first things I tell my students
is that two words that are meaningless when writing about
history are always and never. But nonetheless, people like they
(53:42):
find comfort and being able to say this has always
had value, and so they assume that what they think
they know about the past will hold true in the
imagined future. The way I think about it is da
Vinci's Why do people want a work of art by
(54:02):
da Vinci or Picasso, It's because other people have valued it.
If at some point there's a seismic shift and works
of art by European men are no longer valued, Oops,
well that's the end of that.
Speaker 4 (54:18):
Let me mention two examples going back to nineteen thirty nine,
and it's sort of a bit relevant to what happens
in Ukraine. Presently, Finland was attacked by the Soviet Union
and the gold was transported to Sweden back in nineteen
thirty nine. Sweden, in turn sent some of its gold
to the FED in New York, and the issue is
(54:40):
to following that if you have this sort of idea
that this is more stable than other things, then at
the same time gold is nobody else's dead, and then
you hope that it is more useful than other things
when times are very difficult, and to be blunt, back
in those days, the issue was that you needed the
(55:02):
gold to buy guns, and you aren't so sure what
other types of kind of assets you can monetize to
such an extent that you can actually buy those guns.
Speaker 5 (55:12):
It's not a promise to pay that somehow establish itself
as valuable over time through social convention.
Speaker 1 (55:18):
It's pretty crazy, and it's amazing that the idea that
in a way, the gold held that New York fed
is this obligation of the United States to return it
on demand at some point. And the incredible trust implied
in that that all these countries around the world are
willing to have their gold or at least some of
their gold in a locker in the basement of another
country seems like an extraordinary like social achievement in its
(55:41):
own right.
Speaker 2 (55:42):
But they still want to go check that it's there
every once in a while. That was our special episode
(56:03):
recorded live at Princeton University.
Speaker 1 (56:06):
Tracy a lot of fun. We should try the academic
setting again sometimes.
Speaker 2 (56:09):
Oh yeah, And I gotta say Princeton was beautiful. Just
the architecture was amazing.
Speaker 1 (56:13):
And we can tell, you know, everyone just heard enough.
But it is very funny to me that there's one
thing we take for granted, like the currency is actually
subject to so much debate, and Nolan gets really that
close to like a definitive answer, and that was sort
of a fascinating example of it.
Speaker 2 (56:28):
Then always define your terms, Joe, that's right, all right.
Shall we leave it there.
Speaker 1 (56:32):
Let's leave it there.
Speaker 2 (56:33):
This has been another episode of the Odd Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 1 (56:39):
I'm Joe Wisenthal. You can follow me at the Stallwark.
Follow our producers Carmen Rodriguez at Carmen armand dash Ol
Bennett at Dashbot and kill Brooks and Kilbrooks. From more
odd Laws content, go to bloomberg dot com slash odd Lots.
We're have a daily newsletter and all of our episodes
and you can chat about all of these topics. Twenty
four seven in our discord Discord dot gg slash odd laws.
Speaker 2 (57:00):
And if you enjoy all bots. If you like it
when we try to define what a currency actually is,
then please leave us a positive review on your favorite
podcast platform. And remember, if you are a Bloomberg subscriber,
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All you need to do is find the Bloomberg channel
on Apple Podcasts and follow the instructions there. Thanks for listening.
Hosts And Creators
Joe Weisenthal
Tracy Alloway
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